Q & A with Barbara Corcoran

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Q1 - I'm considering buying a house on a nice block in Queens, but it has a spiral staircase to the master bedroom and popcorn ceilings.  Neither my husband nor I are handy around the house and don't want to navigate the tricky stairs.  We also don't want to live in a house with ugly ceilings.

A - The smartest house to buy is always a house with features nobody wants.  Spiral staircases and popcorn ceilings are high on the list.  But remember that a staircase is easy to take out and replace, and popcorn ceilings can be covered with a new dropped ceiling making you forget the old one's there.  You should bring a good contractor with you for another look so you know how much it will cost to make the changes.  Then you should put in a very low bid that includes the expense of the change, the time you'll lose while the renovation is in progress, and a hefty bonus discount for being smart enough to put in the bid.

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Q2 - I've heard horror stories about people buying into new construction and then the builder goes into bankruptcy.  Is it safe to buy in a building or development that isn't finished yet?

A - Buying in an unfinished development is riskier than ever, and if the builder is offering big concessions like wide-screen TVs, gym memberships or huge price discounts, at best you know he's desperate to find buyers and at worst it means he has very little money left to finish his castle in the sky.  With today's credit squeeze, builders are having a harder time getting their permanent financing in place, which too often results in an unfinished building and angry new owners.

Remember, I said buying in an unfinished building is risky, but not crazy, because the right buy could prove to be a great investment just a few years from now.  Do your homework and check out the builder.  Find out how long they've been in business, what other projects they've done, where they're building now and if they have any other projects that are in jeopardy.  You can find a good deal of information with a simple Internet search.  If you decide to go ahead with a deal, get yourself a shrewd real estate attorney who can make sure you and your investment are protected in the event the builder runs into financial trouble.

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Q3 - I keep hearing that the mortgage market is loosening up but I'm not so sure.  Is it possible to get a second mortgage now?

A - Sure it is, but you won't be able to get as much as you once could and you'll pay a higher rate.  Banks today are typically financing no more than 75% of your home's value when you add a second mortgage, and rates are now around 8% for a fixed rate home equity loan.  You can save money if instead you get a home equity line of credit with a rate that adjusts with the prime.  You'll pay just 2%-3% above the prime - around 3.25% today - and that's a big savings.  The downside is you won't know where your rate will land in any given month.  If you're a nervous Nellie type, you're better off paying more now for the second mortgage and getting a home equity loan with the fixed rate.

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Q4 - I hear the worst of the current recession is over.  So when do you think prices in the United States will go up?

A - Sooner than you think.  The fact that almost 40% of homes sold last month were distressed properties is mind-boggling.  When that many houses are foreclosed or short sold (meaning the house is sold for current market value but less than what the homeowner originally paid for it), it means the bottom is being flushed out of the market.  Prices are at rock bottom and there's only one way to go, and that's UP.  With a little bit of luck, prices may be popping up about the same time as the daffodils this spring.

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Q5 - I'm 61 and would like to have some money to enjoy my retirement.  If I buy a home now, could I get a reverse mortgage on it right away?

A - You've got two strikes against you:  First, you need to be at least 62 in order to qualify for a reverse mortgage and, second, you need to have a large amount of equity in your home.  A reverse mortgage is a loan against the value of your home that you don't have to pay back until you move or die.  How much money you'll get is based on the value of your home and how much equity you have invested in it.  You can take a reverse mortgage payout in one lump sum or in a series of payouts.  A reverse mortgage makes sense if you're "house-rich but cash-poor."  The downside is that the fees associated with a reverse mortgage can reach upwards of 6%.  Bottom line:  a reverse mortgage can be a good solution for some folks who want or need to stay in their homes, but, from a money standpoint, you'd be better off selling your home outright.

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Q6 - What do I do if I have a deposit on new construction that has lost a lot of its value?  Do I have any legal recourse?

A - Call your broker or the developer and try to renegotiate.  Check out the sale prices of the other comparable units that have closed and if they've sold for less than yours, ask them to reduce the contract price by the same percentage.  Also ask them to throw in upgrades like a storage unit or parking spot.  But remember, you have signed a binding purchase contract, so you may not have a lot of options unless you're willing to forfeit your deposit.  Check with your lender.  Many banks have stopped making loans on new construction with less than 70% units in contract and if your contract is contingent on financing, it could give you an out and the leverage you'll need.

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